mbozek

What is more important-- the rules or the risk issue? Will the plan distribution be disqualified if the owner/Plan adm/ employee does not get spousal consent as required by the plan.? If yes then the risk is minimal-- because the IRS does not audit rollovers to an IRA and the only risk is that the IRS would audit the plan after termination which is higly unlikely. There is little risk from the spouse- she would have to sue her husband/ his estate for the 50% benefit. Finally, there is a question is whether your client has a claim of exemption from 412 if the IRS discovers the failure to obtain spousal consent. IRC 412(h)(5) exempts from the funding standards any plan which has not provided for employer contributions after 9/2/74. I dont know if the plan can be amended now to eliminate spousal consent on the grounds that the plan has never been subject to 412. The real question is what is the risk exposure to any advisor who proposes this course of action to the client-- Do you feel lucky today??

Yes unless the plan provides otherwise, e.g., removes the ex-spouse upon divorce.

I dont know... I thought the one time election had to occur at the time of initial eligibilty for the agreement. Is this intitial eligibility?Also if employee is give the opportunity to elect an incentive payment as part of a voluntary separation then the employee will usually sign an agreemnt stating that the aceptance of the incentive pay/ severance is voluntary in order for the employee to validly waive his/her rights under ADEA... which indicates that the employee has a choice.

1. yes 2. yes 3. recieve a distribution upon termination of the plan or termination of emploment-- no rollover is permitted however a tax free transfer to another 457(B) plan is permitted. 4. no

Under a US supreme ct precedent handed down last year, the determination of whether the former spouse is the beneficiary is to be found in the plan document (This assumes that the participant did not remarry). If the plan does not provide for removal of an ex spouse upon divorce, then the ex spouse will have a valid claim for the benefits since state laws that remove the spouse as designated beneficiary upon divorce are preeempted by ERISA.

Plan admin. must follow the terms of the plan which means purchasing an annuity.Only exception is if value of decedents account does not exceed $5,000 then a lump sum can be paid out. Purchasing an annuity is a problem in small businesses -- but this a problem for Congress to fix.

What do you mean by terminated?? Does corp still file tax returns?? Was the corp liquidated or dissolved. If corp was dissolved you could deem the Dr as the successor sponsor as a sole proprietor. Under IRS rules a plan cannot be terminated until all assets are distributed. If employer was liquidated or dissolved then plan would be deemed terminated in year of dissolution. IRS has a position that q plan can not exist if sponsor no longer exists. In any event plan should be amended for gust and applicable 2002 provisons, terminated, assets distributed and a final 5500 form filed. A dc plan a termination filing is probably not necessary as long as contributions were made in a non discriminatory manner but IRS has claimed the ability to find and audit terminated plans that do not get a determination letter upon termination.

According to the legislative history of the Retirment Equity Act of 1984, the after tax contributions and attirrbutable income are supposed to be divided up in the same ratio as the division of assets in the plan, e.g., if spouse gets 40% of plan assets the spouse gets 40% of a/t contributions.

Aannuity benefit can be purchased if plan permits an annuity as a benefit option. Otherwise benefits must be distributed under one of the options permitted by the plan. If plan distiabutes a lump sum and beneficary purchases an annuity then bene will be taxed on fmv of lump sum.

Filing of bkcy petition stays all obligations including pension plan contributions. Plan may have a priority claim for contributions due as of date of filing of bkcy. Plan may have to be revised to eliminate safe harbor provison. Plan will probably be terminated as part of Ch 11 filing in order to reduce debt obligations of employer.

Are the faculty members HCEs , e.g., earn in excess of $90,000? If not then the nondiscrimination rules do not apply and employer can contribute up to 40K. Employees with 15 yrs service can contribute an additional 3k to the 403(B) plan. Also employer could establish 457(B) plan and provide for deferral of 11k + catch up. Employer could also establish a severance plan under ERISA and pay up to two years salary in a lump sum or periodic payments. There are many options and you should consult with counsel to determine the best options.

The questions you ask are fact based and require the review of the plan documents, termination notices and applicable law so you need to consult with counsel asap. If the mp plan is being terminated, is the sponsor going to file a 5310 ? You should also go back to the counsel/consultant/ tax advisor who prepared the documents and pose your questions to him or her. If the MP plan is terminated then the accounts can be rolled over to another plan provided that spousal consent is provided. The annuity opotion would have to be preseved if tahe assets of the MP were merged with the PS plan.

The plan sponsor should retain counsel to answer these questions (or ask counsel who represents the employer why the MP plan was deemed to be terminated). If the participants have been notified that the plan was terminated then it seems likely that the MP plan has been terminated and participants are 10% vested. Benefits will have to be distributed under the annuity options required for a mp plan. The question is why was the MP plan terminated??? A MP plan can be merged into another plan without the requirement that it be terminated.

Where the beneficiary is a minor the payment can only be made to a guardian or a conservator appointed by a state court. Usually the custodial parent will be named as the guardian or conservator. In some states a conservator can be appointed at a lower legal cost than a guardian. Funds must be desposited in an account in the name of the guardian/cons. for the benefit of the child. Guardian/cons. will sign all documents on behalf of the minor beneficiary. Since the minor is the beneficiary the benefits will be taxed to him. Both plan and parent need to retain counsel.

The reason the corp needs a bkcy lawyer is that unpaid contributions arising within a 180 day period before the earlier of the filing of the petition or cessation of the business have a priority under Sect 507(a)(4) of the Bkcy act in the amt of up to $4300 per participant. Benefits lawyers are not aware of such provisions.

I was referring to an old ruling (RR 66-138) which held that if the proceeds are paid directly to the trust as the beneficiary and commingled with other assets of the trust then the participants willl not be deemed to have received any portion of the LI proceeds. In some plans the proceeds of the LI are not allocated to the deceased participant's account and all particpants share in the proceeds on a a non discriminatory basis.

Generally all plan assets have to be distributed within one year after the determinaton letter is issued in order for the plan to be considered terminated.

You really need to consult a bankruptcy attorney to review the issues. If the plan sponsor declares bankruptcy then all liabilities including the obligation to make contributions by 6/15/02 are suspended by the bankruptcy filing. The plan will become a general creditor of the plan sponsor for the contribution owed and will be eligible for a share of any assets which remain after all of the secured and higher priority creditors are paid off. If the plan sponsor files for chapter 11 there is a possiblilty that the plan sponsor may reorganized and emerge from bankruptcy. Since a DC plan is not subject to PBGC coverage, the benefits are not guaranteed and the plan will probably be terminated by the bankruptcy trustee and the plan assets distributed to the plan participants. Owner should not be liable for the liabilities of a separate corporation which files for bankruptcy if the owner wasnt required to make contributions to the plan.

Tiaa-CREF only offers annuity contracts or investments in mutual funds to its participants. Investing in a LLC has many issues that make IRA custodians wary. If the LLC is an offshore co it will probably not be accepted. Some custodians will limit investments to publicaly traded cos. Also the IRA cannot invest in an LLC that is more thn 50% owned by the IRA owner. If the llc value goes down the owner cannot use the loss to offset the capital gains on other investments. And the gains on the LLC will be taxed as ordinary income not as capital gains.

There are several legal issues that need to be reviewed by counsel: 1. Validity of the injunction. Injunctions can be issued only against a party to a law suit which generally means the spouses in a divorce. In most states the retirement plan is not a party and therefore is not represented by counsel before the court--So an injunction cannot be issued against a non party to the suit under applicable st. law without violating the due process clause. The only way this could legally work is if the participant was enjoined by the court from requesting a distribution from the plan. 2. If the injunction is against the participant then the plan could honor the distribution request and the participant could be held in contempt for violating the injunction-- but the Plan admin would not be liabile for turning over the funds to the part. ( ther could be a separate issue if the court orders impoundment of the funds or order the PA to turn the funds over to the ct.) 3. Normally all issues against a plan are resolved in federal ct. including the question of paying benefits. The plan could refuse to pay the participant's benefits pursuant to the injunction and wait for the participant to sue the plan in federal ct and defend on the grounds of the injunction. The plan could pay benefits to the spouse under a valid QDRO. 4. The plan could take the offensive and file its own action in State court asserting that the injunction against making the distribution is invalid under ERISA . ( The plan may not be able to use this method in Fed ct because of the anit-injunction act which prevents litigants from going to fed ct to prevent enforcement of state court decisions-- this is why the Plan ad. needs counsel). There is one possible way to go to federal ct-- the plan could file a complaint of interpleader as a stakeholder and make both H & W parties to the action and ask the ct to decide who is entitled to the benefits. But the Fed ct. could refuse to take jurisdiction over the case because of the pending st. ct action. Obviously going to court is expensive and time consuming and the question is who will pay for the cost of representing the plan.

The SEP has no assets that can be merged because all of the accounts are held in IRAs owned by each employee. Only the employee can decide wther to transfer assets to another IRA or Q plan. The employer can permit rollovers from the SEP/IRAs to the 401(k) plan.

Early retirement window programs are usually designed by HR with the assistance of counsel and the consultants because of the myrad of legal requirements and options. Window plans can be either part of a qualified or a non qualified plan, voluntary or involuntary, for all employees, a pre selected group of employees or only non highly compensated employees. Some plans offer increased age and years of svc ( 5 & 5 plans) which increase retirement benefits and reduce or eliminate early retirement reductions. Some early retirement plans also provide some form of retiree health subsidy. Providing benefits through the retirement plan avoids a cash flow problem while paying benefits from a severance plan reduces the operating income of the employer. Also the maximum period for severance benefits is 2 years of salary where there is no limit on the increase in a qualfied plan other than the 415 limits. All window programs are subject to the ADEA requirement that benefits not discriminate against employee 40 and over and the ability to have the participants waive all of their rights against the employer. I use a check list for early retirement programs that runs about 4-5 pages of issues that must be resolved. You really cannot do this kind of a project with out proper legal and actuarial advice. It is my understanding that the cost of the early retirement plan must be booked as an expense in the year it is implimented. Usually the cost determines the size of the program. Card: Like all things relating to the ADEA, there are no regulations just general principles. An employer can limit a voluntary plan to a fixed number of people, reserve the right to defer the early retirement for critical emplyees for a period of time, limit eligibility to stipulated groups of employees, etc, provided that the program does not discriminate against persons in the protected group-- age, sex race, etc. This is why counsel is so important. Each early retirement plan has to be analyzed for employment discrimination, tax, ERISA and qualified plan requirements. This is why they they are expensive to impliment.

I dont know how you can invest in an LLC in a t/c plan because the participants can only invest in an annuity contaract or mutual funds. 403(B) plans of np employers who are not churches cannot invest in individual stocks or limited partnerships or privately held co. While an IRA can invest in privately held investments such as LLPs, LLC and non public corps, it is difficult to find a custodian who is willing to hold such assets. Those custodians that do want to charge extra and have special rules such as requiring that the LLC provide a valuation as of each Dec 31.

I think state laws are preempted for any plan termination or demutualization dividend received after 9/2/74 See--Ruocco v. Bateman, Eichler etc, 903 2d 1232-- Cal Ins. is preempted by ERISA regarding an employer's right to the surplus because ERISA regulates employee benefit plans funded by insurance and the state only regulates the terms of the insurance contract. Also in a pension plan funded solely by the employer, the demutualizaton surplus will be paid to the employer even if the plan is silent on the distribution of assets, because to rule otherswise would result in an unintended windfall for employees. Wright v. Nimmons 641 FSupp 1391 (1986). This decision is consistent with Hughes which held that employees have no right to a plan surplus after a merger of their contributory plan with a non contributory plan because the employer takes investment risk in a DB plan.

You should review IRS notice 95-34 for the various ways in which contributions to a 419A(f)(6) trust can be disallowed as a deduction under IRC 162.